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    Corteva Inc (CTVA)

    Q4 2023 Earnings Summary

    Reported on Jan 10, 2025 (After Market Close)
    Pre-Earnings Price$54.06Last close (Feb 1, 2024)
    Post-Earnings Price$54.30Open (Feb 2, 2024)
    Price Change
    $0.24(+0.44%)

    What went well

    • Enlist E3 soybeans are expected to reach 60% market penetration in 2024, improving profitability due to reduced royalty expenses.
    • Significant EBITDA growth anticipated in 2025 driven by cost deflation benefits, operational improvements, and self-help initiatives, leading to an expected EBITDA of approximately $4.2 billion and margin expansion to 22%.
    • Differentiated Crop Protection products, including new products and Biologicals, are expected to drive growth despite market destocking, with the Biologicals business expected to double EBITDA in 2024.

    What went wrong

    • Continued destocking in the Crop Protection market, particularly in Brazil, is expected to impact Corteva's business in 2024, leading to potential headwinds in volume and pricing.
    • Increased SG&A expenses, including higher incentive compensation accruals and other costs, are anticipated in 2024, which may offset some cost benefits and impact earnings growth.
    • Weather challenges and delayed planting in Brazil are resulting in a double-digit reduction in corn planting area, which could negatively affect Seed sales in Latin America.

    Q&A Summary

    1. 2024 vs 2025 EBITDA Growth Drivers
      Q: Why is EBITDA growth accelerating in 2025 versus 2024?
      A: Management explained that while 2024 will still be impacted by destocking in Crop Protection, they expect significant EBITDA growth in 2025 due to the CP market stabilizing and resuming growth. They also anticipate $350 million to $450 million of self-help measures, including cost savings and improved royalties, contributing to 2025 earnings. Additionally, deflation benefits will have a greater positive impact in 2025, especially in Seed.

    2. Input Cost Relief Timing in CP and Seed
      Q: When will input cost relief benefit Crop Protection and Seed segments?
      A: In Crop Protection, the company expects a low single-digit percentage benefit on direct materials in 2024, around 2–3%. For Seed, due to hedging strategies, there will be no meaningful cost relief in 2024, but they'll see benefits in 2025 from lower commodity prices.

    3. 2024 Cost Increases vs Cost Benefits
      Q: Why aren't cost benefits driving earnings growth in 2024?
      A: Despite significant cost benefits of around $250 million from productivity and $100 million from net royalties, these are offset by higher R&D expenses ($100 million) and over $200 million in SG&A increases in 2024. Increases include merit raises, incentive compensation accruals, and costs shifting from capital expense to SG&A. Management expects these headwinds won't recur in 2025, aiding earnings growth.

    4. Crop Protection Destocking Impact
      Q: How is destocking affecting Crop Protection volume and price?
      A: Destocking is still ongoing in Brazil and parts of Europe, but largely complete in the U.S., where the market is functioning normally. The global Crop Protection market is expected to be down low single digits in 2024 due to price pressure, with volumes stable and growing. They anticipate normalization in the second half of the year and a return to normal growth in 2025.

    5. Free Cash Flow Outlook and Working Capital
      Q: What is the outlook for free cash flow and working capital in 2024?
      A: The company expects continued progress in working capital in 2024, with both receivables and payables contributing to cash flow. They anticipate near 50% conversion of cash flow to EBITDA in their 2024 guidance.

    6. Latin America Challenges and Generic Competition
      Q: What challenges are you facing in Latin America, especially Brazil?
      A: Brazil has been impacted by severe weather, destocking, and macroeconomic challenges, leading to a double-digit reduction in corn planting area. Destocking in Crop Protection will last longer in Brazil, and market dynamics include competitive pressure from generics. However, management remains optimistic about long-term growth in the region.

    7. North America Seed: Enlist Adoption and Royalties
      Q: How is Enlist adoption progressing, and what's the impact on royalties?
      A: Enlist E3 soybeans are expected to reach about 60% market share in 2024. The majority of the $100 million net royalty benefit this year comes from reduced royalty payments, primarily in soybeans. In future years, they expect greater benefits from in-licensing royalties.

    8. Corn to Soy Shift Impact on Profitability
      Q: How does the shift from corn to soy affect profitability?
      A: While corn remains more profitable than soybeans in North America, the difference has decreased due to higher profitability in soybeans from Enlist E3 adoption. The anticipated acreage shift is already factored into their projections, and the impact is less significant than in the past.

    9. Generic Imports into Latin America
      Q: Has the influx of generic Crop Protection imports into Latin America changed?
      A: Elevated imports of generics into Latin America have slowed down since the third quarter. A rebalancing is occurring as movements need to be profitable, and while generics remain part of the market, they are not the primary focus for the company.

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